While permanent life insurance products that differ by virtue of their makeup are distinguished from one another by industry accepted naming conventions, the insurance industry does not formally label the different pricing methodologies of the different types of products priced and targeted for different types of consumers. For instance, there are only 3 basic types of permanent life insurance when grouped by virtue of their makeup: (1) whole life insurance which typically provides level death benefit coverage for the whole of the insured's life; (2) universal life insurance policies which are flexible-premium, adjustable death benefit, unbundled life contracts; and (3) variable universal life whose values may vary directly with the performance of a set of earmarked investments. Life & Health Insurance: 13th Edition. Black, Kenneth, Jr., Skipper, Harold D., Jr. Prentice Hall (2000). It should be noted that variable life is an early evolution of the category of variable life insurance policies.
While no such similar formal naming convention exists to distinguished products that differ by virtue of the market for which they are priced and to which they are marketed, all policies can, nonetheless, be categorized by the nature of the underlying expenses as to COIs, Premium-Based Charges, Cash-Value-Based Charges, and Fixed-Type Charges, and the manner in which these expenses are assembled into the following 3 basic groups based on the following 3 different markets/pricing methodologies:                1) Retail Products/Pricing        2) Institutional Products/Pricing        3) Experience-Rated Products/PricingRetail Products/Pricing        
The life insurance needs of the general consumer are still largely served by the existing distribution system of Agents and Brokers (herein collectively “Agents”) who represent a particular insurance company or group of companies. This method of distribution typically involves the “bundling” the sale of the life insurance product together with some level of value-added financial planning service related directly or indirectly to the need for life insurance (e.g. like determining the amount of life insurance needed though a capital needs analysis, general retirement planning, overall benefit planning and consulting, income tax planning, business continuity consulting and financing, general estate planning, estate tax financing, etc.). There is often a high-level of personal involvement associated with the marketing and sale of a particular insurance company's products by the traditional Agent. Because of this high-level of personal involvement leading up to the purchase of life insurance, and absent any easy and convenient means of doing some level of “comparison shopping”, there is considerable disincentive for consumers to separate the purchase of life insurance from these value added services.
In the current distribution environment where Agents represent only a small fraction of the total number of insurance carriers whose products could otherwise prove suitable, and without any effective means for Agents to compare product pricing on behalf of the consumer, separating the insurance purchase from the value added services would require the consumer to 1) engage and pay a fee-for-service Advisor to repeat the planning already prepared by the Agent, 2) contact multiple other Agents for “price quotes” (i.e. hypothetical policy illustrations), and 3) either attempt to compare the hypothetical policy illustrations involving literally thousands of computations (as described above/below), or engage and pay a another fee-for-service Advisor to do the “comparison shopping” for them. As a result, because of this high-level of personal Agent involvement, and additional and redundant time, energy, difficulty and cost preventing consumers from doing some level of comparison shopping, these products typically have high(er) loads or high(er) surrender charges. As such, by analogy with other products marketed to the general consumer that also typically have higher costs associated with the distribution of the product, these products will be referred to as “Retail” products.
In addition to the “Retail” products marketed and sold by the existing traditional distribution systems of Agents, there are other forms of “Retail” products marketed directly to the general consumer through alternative distribution channels like the Internet, television, direct mail, or through a variety of associations to which the consumer may be a member. These products are customarily marketed on the basis of offering lower or no loads, or lower or no surrender charges, and for these reasons, implies the promise of superior value to the consumer. For instance, a characteristic representation of one of these “Low-Load Direct-Retail” products is that they “dramatically reduce product charges and eliminate front-end and back-end sales loads . . . ” and that these products are “designed from the investor's perspective and now offers a life insurance plan that provides a good vehicle to accumulate and transfer wealth.” Of course, the implication is that by reducing or eliminating certain policy loads, these “No/Low-Load” products offer an inherently superior value, and have been developed in direct response to the absence of any means for either the direct consumer or the Agents to easily and simply compare insurance product pricing. In the absence of complete product pricing information that is vital to making an informed insurance decision, consumers are unable to seek out, identify and purchase the most efficiently priced product, and in so doing, create pressure in the market to squeeze out the inefficiently-priced products. As such, the market of certain insurance product manufacturers has responded by reducing or eliminating those policy costs that are most visible to the general consumer.
However, as previously mentioned, the most influential policy pricing component are typically the COIs, which have as much as 5-Times the impact over policy pricing than do the visible, disclosed policy loads and expenses. From the perspective of the insurance company, insurance is simply the transfer of risk of financial loss from an individual where that risk is unpredictable, to a group of individuals that is sufficiently large to make that risk both predictable and fundable. COIs are the mechanism by which life insurers typically “fund” the payment of these death claims. As such, insurance companies pool policies to make these risks more predictable, and the larger the pool, the more predictable the risk. This pooling, which has the effect of combining large and small policies, and low and high risk segments of the pool, averages the variables that contribute to premium prices. Since different groups of policyholders have different claims experience and expenses profiles, premiums will vary depending on the claims experience and expenses for the group being insured. In effect, this averaging cross-subsidizes smaller transactions and higher-risk segments with excess “profits” from the larger transactions and lower-risk segments in the pool.
In addition, as previously mentioned, certain insurers “load” the COIs to cover other policy expenses that are not disclosed elsewhere. For instance, some policies marketed as “no/low-load” policies do not disclose certain policy expenses or loads, even though they must be paid (e.g. State Premium Taxes, Federal Deferred Acquisition Costs (DAC) Taxes, and the cost to distribute the policies [policies do not distribute themselves]). As such, some of these “No/Low Load” products include the same, or in some cases, higher “loads” to cover the costs of distributing the policy directly to the consumer rather than through an Agent, but these loads are not disclosed, but instead are often “hidden” inside the unpublished “loaded” COI charges. Consequently, because these “No/Low Load” products are marketed to the general consumer and also typically have higher costs associated with the distribution of the product, these products will also be referred to as “Retail” products, which will be collectively defined as those policies that 1) are available to the general consumer as evidenced by no or low minimum insurance face amount or premium requirements, 2) have higher policy expenses relative to the benchmarks established below without regard to whether these policy expenses take the form of loads, COIs or other policy charges.
Institutional Products/Pricing
Large companies and high-net-worth individuals purchase insurance differently than the average “retail” buyer. Because large transactions and large groups of policies can cost less to sell and administer, carriers frequently reduce institutional policy costs to reflect volume discounts and economies of scale. Because Institutional products are maintained longer, are more well-funded, and are larger, they can be placed and administered more efficiently and have can have lower expense ratios than products for Retail markets. Somewhat paradoxically, however, because some institutional products are designed specifically to be used in certain administratively-intense corporate benefits plans, these type of institutionally-priced products can actually include higher levels of certain policy loads and expenses. In either case, a distinguishing characteristic of institutionally-priced products is that they assess lower or no charges for early surrender/cancellation. While institutional products are becoming more widely available, threshold financial requirements still limit access to Institutional Pricing that offers lower premiums to only a small percent of insurance buyers. Institutional products will be collectively defined as those policies that 1) only available to the qualified buyers as determined by either some minimum insurance face amount or premium requirements, or by virtue of certain personal or corporate financial suitability requirements, and 2) have lower policy expenses relative to the benchmarks established below without regard to whether these policy expenses take the form of loads, COIs or other policy charges.
Experience-Rated Pricing
In addition to the same advantage of lower expenses offered by Institutional Pricing, Experience-Rated Pricing also offers the benefit of lower COI charges. Experience-Rated products are either proprietary products of private placement products available to only a selective and segregated pool of qualified companies and qualified individuals. Experience-Rated products are priced for the superior claims experience of professionals, business executives and owners, and high net worth individuals. Because this group enjoys healthier lifestyles and better health care, they live longer, and therefore, experiences lower mortality rates. Products priced for this market generally have lower COI charges than products sold to retail and institutional markets, in similar form or fashion as to the way GEICO® auto insurance selects low-risk drivers for their pool, and then charges lower premiums corresponding to the superior claims experience of that pool. Experience-rated products will therefore be collectively defined as those policies that 1) are only available to the qualified buyers as determined by either some minimum insurance face amount or premium requirements, or by virtue of certain personal or corporate financial suitability requirements, or by virtue of some occupational or lifestyle suitability requirement and 2) have lower COIs relative to the benchmarks established below.
There is presently no technology for the comparison of permanent life insurance products. The only existing technology involves the comparison of “fixed premium/fixed benefit” products, like term life insurance, where a predetermined premium is stipulated for a given amount of coverage. In this application, this current technology involves the creation of a database of published information and then simply searching this database for this fixed rate based on the amount of coverage and a number of other factors like age, gender, risk profile, etc. However, due to the lack of published information about the pricing of permanent life insurance products, and due to the number of combinations and permutations of the number of variables involved in the pricing of an individual life insurance product, the current database-search-engine-like technology does not lend itself to the comparison of permanent life insurance products. For this reason, the consumer is currently relegated to, for lack of a superior method, seeking out this information on their own, but limited to the extent that they have a personal relationship with a sufficiently large number of life insurance Agents who are properly licensed to sell a given life insurance product or products as to be able to obtain the information on a wide enough variety of products to make an informed decision as to the most suitable product for the given client/need.
Accordingly, what is needed in the art is method for accurately comparing the value and performance of a permanent life insurance policy.
It is, therefore, to the effective resolution of the aforementioned problems and shortcomings of the prior art that the present invention is directed.
However, in view of the prior art in at the time the present invention was made, it was not obvious to those of ordinary skill in the pertinent art how the identified needs could be fulfilled.